Assessment of the Potential for the. Commercialization of Conjunctive. Executive Summary

Transcription

1 PV- Hydro Initiative Stages 1 & 2 Assessment of the Potential for the Commercialization of Conjunctive Photovoltaic - Hydro Power Generation Executive Summary Background and Objectives of the PV-Hydro Marketing Initiative The Global Environment Facility (GEF) with support from the World Bank Group and the UN Environmental Programme (UNEP) as well as the German Government -, through the Kreditanstalt für Wiederaufbau (KfW) - are exploring the possibility of stimulating a quantum leap in solar photovoltaic (PV) manufacturing scale, by facilitating the development of a market for thousands of megawatts of grid-connected photovoltaic (GCPV) systems. The initiative intends to promote PV as a clean, sustainable energy form which, in the longrun, will contribute to contain the effects of greenhouse gas emissions by substituting fossil fuel by trying to solve the hen and egg -problem: high prices curb the demand for PV systems, while low demand does not provide the incentive to invest in large manufacturing facilities which would allow to drive prices down through economies of scale and advanced production technologies. The basic idea is to instigate the acceleration of the market penetration of PV applications by identifying additional market segments beyond the currently existing ones such as, e.g., rural electrification through PV solar home systems and subsidized roof-top programmes in industrialized countries. These markets are constrained by the limited purchasing power of the potential users, and scarcity of public funds for sustainable subsidy schemes over a longer period, respectively.

2 Photovoltaic Hydro Power Conjunctive Use Study Final Report - Page 2 Therefore, a more promising approach to enhance the demand for and use of PV technologies consists in finding grid-connected applications, which offer a vastly larger market potential in the medium-term provided PV can be supplied at commercial or almost commercial terms. It is expected that a sufficiently large effective market potential would provide the basis for the PV industry to invest into the next generation of far larger and cost efficient production facilities and that this would lead to a significant reduction of PV system prices towards a level at which they would become competitive at the margin with conventional electricity generation. It is obvious that a substantial reduction in specific PV investment costs would also be of immediate benefit to individual off-grid users with limited financial resources, as typically found rural and semi-urban areas. One attractive option for GCPV could be the operation of PV plants in conjunction with hydropower facilities because it would eliminate the need for batteries or other energy storage devices. This market segment was explored by a market assessment study, for which Lahmeyer International and the associated Solar-Institut Jülich were selected as the consultants. Study Objectives and Approach The market assessment study was the first step of the above-mentioned Marketing Initiative. The objective of the study was to identify power systems in developing countries that are suitable for the installation of MW-scale PV generation capacity connected to the grid and operated in conjunction with existing - or firmly committed - hydro plants which are energy (water) constrained. In other words, hydro plants that possess spare storage capacity which could be used to exploit to a fuller extent the installed generation capacity. The underlying idea is to convert intermittent, non-dispatchable and thus low-value PV loads into peakshaving, higher-value loads through an appropriate re-scheduling of the hydro units using the unused storage capacities as a virtual battery. The conjunctive use of GCPV plants and hydroelectric facilities would thereby increase the amount of firm energy available to supply the system during times of peak demand, displace an equivalent amount of thermal generation, and thus avoid emissions of Greenhouse Gases (GHG).

3 Photovoltaic Hydro Power Conjunctive Use Study Final Report - Page 3 The immediate goal of the study was to identify, in the first step, an effective PV market potential in the order of around 4,000 MW, equivalent to annual installations of some 800 MW over a five-year-period, and to prepare a prioritized inventory of suitable hydro sites for implementation of the concept, including two or more sites for demonstration plants serving as Reference Centers for the approach. Moreover, the study aimed to assess, on a more general scale, the worldwide technical potential for the approach. To achieve these objectives, a methodology for long-term power system analysis was developed, in which based on their techno-economic parameters - large-scale gridconnected PV plants compete with conventional generation candidates for their implementation timing and sizing as well as for their operational duties in the daily load dispatch of the power system. The proposed methodological approach was replicated in a PV-Hydropower model consisting of a series of dedicated planning modules. The first module deals with the expected hourly PV power production at specific geographic locations, another performs seasonal PV load dispatches. Models for long-term expansion of the power system analyze the future techno-economic performance with and without the PV installations, given a set of planning constraints and parameters. The final module deals with the economic assessment of the various expansion alternatives analyzed. Results of the Market Assessment The study proceeded in several steps: Global screening of countries with a promising technical potential for PV-hydro conjunctive use; Country-specific case studies on a system level for a number of countries selected during the screening process General global assessment of the potential market for all countries found to be suitable during the original screening process Identification of specific sites to be considered in more detail in the follow-up process to the market assessment.

4 Photovoltaic Hydro Power Conjunctive Use Study Final Report - Page 4 Global Screening for Candidate Countries In a global screening exercise, all developing countries eligible for financing from the World Bank Group were analyses in terms of several screening criteria. The main criterion was the suitability for the PV-Hydro conjunctive approach in terms of annual solar irradiation and the amount of existing or firmly committed hydropower plants with suitable storage facilities. Moreover, only countries with a stable economic situation and sound sectoral conditions were considered for further activities. Excluding from the sample all countries with an annual solar irradiation potential below 1,700 kwh/m 2. This leaves a total installed hydropower capacity of some 315,000 MW. Country-specific Case Studies From the catalogue of candidate countries a short-list was selected for further analysis. For those, country-specific case studies on system level were performed. Case studies allow the transparent assessment of the assumptions made and the results obtained, taking into account the representative characteristics of the individual power systems such as the duration and intensity of solar irradiation, seasonally varying power demand as described by the shape of the daily load curves, temporal variation of hydrological characteristics which influence the operation and output of hydroelectric power stations, and the availability and economics of other power supply options. The following six supply systems have been analyzed in detail: Namibia Power Corporation (NamPower) in Namibia Ceylon Electricity Board (CEB) in Sri Lanka Ethiopian Electric Power Corporation (EEPCO) in Ethiopia National Interconnected System (SINAC) in Peru Comisión Federal de Electricidad (CFE) in Mexico Comisión Nacional de Energía Eléctrica through the Oficina de Operación de Sistemas Interconectados (OPSIS) in Venezuela All utilities with the exception of SINAC in Peru - were visited on site with the objective to propagate the current initiative and to collect vital information and data for power system

5 Photovoltaic Hydro Power Conjunctive Use Study Final Report - Page 5 planning. In the majority of cases, full support for the current study was experienced and data were received in the required degree of detail. For the Mexican power system, information on the potential of the various hydropower stations were available only in an aggregate format. In Venezuela, the power utilities considered the requested information to be highly sensitive, so the data retrieved were limited mainly to those officially published. For these reasons, data for Mexico and Venezuela were only available in rather aggregate and incomplete form, falling short of requirements. For the six case studies the total estimated technical potential for PV-systems in conjunctive use with existing and firmly committed hydropower amounts to 3,4 MW p during an expansion period of mostly 15 years. To answer the question at which prices the PV solution would break even with the system expansion utilizing conventional generating plant only, a range of scenarios with the following parameter variations was considered: Crude oil prices (US$/bbl) : 20,, (price basis: year 2000) Annual real discount rates (%) : 0 to 12.5 in increments of 2.5 Carbon credit rates (US$/ton of CO 2 ) : 0,5 and 10 US$/ton of avoided CO 2 PV investment costs (US$/kW p ) : 500 to 5,000, in increments of 500, with 5,000US$/kW p as the costs currently observed for large systems Table ES-1 summarizes information on installed capacity and system demand for the six countries analyzed during the case studies.

6 Photovoltaic Hydro Power Conjunctive Use Study Final Report - Page 6 Table ES-1: Installed Capacity and System Demand Country Year Thermal Installed Capacity Hydro (MW) (MW) (%) Namibia Ethiopia Peru ,690 2, ,800 3, Sri Lanka , ,699 1, Venezuela ,310 12, ,845 17, Mexico 2001,880 10, ,850 12, Import to Namibia from the Republic of South Africa System Demand Estimated Cap. Growth/ PV Potential Load f. (MW p ) (MW) (%) , , , , , , ,000 27, , The tables ES-2 through ES-4 summarize the break-even PV investment costs of the Case Studies for selected scenarios of crude oil prices, discount rates and carbon credit rates. The results obtained for Mexico and Venezuela are skewed and therefore unrepresentative of actual opportunity cost. They were some 35% lower than those for the other countries. Table ES-2: Break Even PV Costs for a Carbon Credit Rate of 0 US$/ton Discount Rate (%) Country Namibia Sri Lanka Ethiopia Crude Oil Price Break Even PV Costs (US$/bbl) (US$/kW p ) 20 1,936 1,812 1, ,497 1,462 1, ,203 1,228 1,379 2,315 1,791 1,439 2,694 2,084 1,676 2,141 1,721 1,441 2,471 1,981 1,653 2,198 1,775 1,501 2,411 1,933 1,623 Peru 2,261 1,814 1,515 2,606 2,080 1,727 2,955 2,349 1,943

7 Photovoltaic Hydro Power Conjunctive Use Study Final Report - Page 7 Table ES- 3: Break Even PV Costs for a Carbon Credit Rate of 5 US$/ton Discount Rate (%) Country Namibia Sri Lanka Ethiopia Crude Oil Price Break Even PV Costs (US$/bbl) (US$/kW p ) 20 2,049 1,956 2, ,585 1,574 1, ,273 1,319 1,419 2,428 1,878 1,510 2,807 2,172 1,747 2,285 1,833 1,531 2,614 2,093 1,744 2,268 1,827 1,541 2,480 1,985 1,663 Peru 2,393 1,915 1,596 2,738 2,181 1,809 3,087 2,450 2,024 Table ES-4: Break Even PV Costs for a Carbon Credit Rate of 10 US$/ton Discount Rate (%) Crude Oil Price (US$/bbl) Namibia 2,162 1,672 1,344 2,541 1,966 1,581 2,920 2,260 1,817 Sri Lanka Ethiopia Break Even PV Costs (US$/kW p ) 2,099 2,1 1,686 1,721 1,409 1,459 2,429 1,945 1,622 2,758 2,205 1,834 2,338 1,879 1,581 2,550 2,036 1,703 Peru 2,5 2,017 1,677 2,870 2,283 1,890 3,219 2,552 2,105 As can be seen, the break-even PV investment costs Increase with increasing fuel prices Decrease with increasing discount rates Increase with increasing carbon credit rates.

8 Photovoltaic Hydro Power Conjunctive Use Study Final Report - Page 8 Disregarding the unrepresentative results for Mexico and Venezuela, the specific PV costs to render the expansion plan with PV economically feasible range from 2,036 US$/kW p for Ethiopia to 2,552 US$/kW p for Peru for the scenario involving a crude oil price of US$/bbl, a discount rate of % and a carbon credit rate of 10 US$/ton of avoided CO 2. The break-even PV costs depend on some inter-related factors which cannot be isolated from each other. The most important ones are: shape of the seasonal load duration curves shape of the daily load curves type of hydro dispatch (individual by plant or accumulated by one equivalent storage and one equivalent pondage plant) coincidence of daily peak and PV energy supply type of energy replaced by PV energy. The main results of this analysis can be summarized as follows: With decreasing discount rate, the cost reduction needed for economic feasibility will increase. Under the assumption of high fuel prices and a high discount rate of 10%, PV system costs would have to come down to the range of -40% of the present price level of about US$ 6,000/kW p to be fully competitive, while at a discount rate of 5% the break even would be achieved at a cost reduction of about 50%. Specific unit costs could be higher if additional revenues could be generated for avoided emissions in comparison to thermal generation through a suitable mechanism such as emission trading or carbon credits. Moreover, potential benefits for distributed generation in terms of reduced system losses and reduced distribution investment needs could also contribute to higher break-even prices. It has to be underlined that these results need to be refined in follow-up feasibility studies. It is expected that through the detailed analysis of the operational aspects of the PV-hydro subsystems in the various countries higher break-even prices could be determined. This, consequently would increase the economic attractiveness of PV-hydro installations.

9 Photovoltaic Hydro Power Conjunctive Use Study Final Report - Page 9 Global assessment of the potential market Building on the screening exercise of the candidate countries and the insights gained from the case studies, the study undertook a global assessment of the suitable large-scale PV- Hydro potential. The starting point is the 315,000 MW of hydro capacity installed or under construction, representing roughly 46% of the global installation. It is expected that - under very conservative assumptions - 60% of that capacity may not be suitable for PV-Hydro operations because they either do not possess the necessary storage capacity as in the case of run-of-river plants without pondage, or do not show any sizeable shortage with regard to water inflows and availability. This would leave a suitable hydro potential of 1,000 MW. Assuming furthermore that some % of the installed capacity may not be available for different technical reasons, the total reference capacity for conjunctive use is 95,000 MW. For the concomitant overall PV potential two estimates have been used: assuming 3 hours hydro based peak operation which has to be secured by 7 full-load hours PV-operation, the corresponding GCPV potential would amount to some 40,000 MW. Using instead a capacity ratio of 3 MW Hydro as against 1 MW PV, a general result corroborated by most of the case studies, the resulting GCPV potential would still be some 32,000 MW. To put this potential market size into perspective: if each of the 400 million households worldwide, which currently do not have access to electric power, were equipped with a Solar Home System of the standard 50 W capacity, this would result in a total installed capacity of 20,000 MW. Moreover, it is worth mentioning that the Terms of Reference for this Study limited the scope of the countries analyzed. Relaxing the constraints imposed so as to include all developing countries and also OECD/IEA countries in the sun-belt as potential candidates, the GCPV market would experience a considerable augmentation.

10 Photovoltaic Hydro Power Conjunctive Use Study Final Report - Page 10 The Way Forward While few of these prospective applications would be economically viable at today's PV prices, a "forward pricing approach building on the cost reduction potential to be realized with increased PV manufacturing capacity could well lead to the construction of PV-Hydro facilities at or near commercial terms within a time-horizon of, say, five to 10 years. Firm commitments by a sufficient number of hydro plant operators to add PV generation under this approach would create a significant new PV market. To realize this approach close collaboration among the interested parties (utilities, developers, financing institutions, PV manufacturers) would be required. Moreover, the forward pricing approach would call for new and innovative financing and guarantee instruments which allow for suitable risk allocation as a buffer to the inherent uncertainties of the approach. Demonstration Projects at Selected Reference Centers In order to demonstrate the viability and operational robustness of the approach, sites for socalled Regional Reference Centers were identified during the study. These would serve the purpose: to demonstrate the technical, operational and ultimately economic feasibility of utilizing PV-based solar energy for firming up the productive capacity of existing hydro projects, to promote and accelerate further development of PV installations through experience gained in real-time conjunctive operations. One Asian Reference Center is currently being set up with GEF financing under IFC management. It consists of the installation of a 1 MW PV project in the service territory of a distribution utility in the Philippines on the island of Mindanao. This plant is designed to operate in conjunction with the utility s 7 MW hydropower plant.

11 Photovoltaic Hydro Power Conjunctive Use Study Final Report - Page 11 Two more countries/utilities each were selected for Africa, Asia, Australasia and Latin America/Caribbean Islands. From those, the Consultant proposed Swaziland in Africa and Costa Rica in Central America for further detailed study with the objective of installing PV capacity in the order of 10 MW to 20 MW each for conjunctive use with existing hydropower stations. The results of these undertakings will be of significant benefit for the subsequent planning, implementation and operation of large-scale grid-connected PV plant. Next steps to be taken In order to maintain the current momentum of the PV-Hydro Initiative, the following steps are proposed, in addition to pre-feasibility and/or feasibility studies for demonstration plants to be implemented at Regional Reference Centers. Obtain the active participation of a larger number of stakeholders in the initiative Analyze and define innovative financing and market aggregation instruments Establish a business plan which outlines a tentative time horizon/time schedule until fullstage implementation, giving due allowance for expected time delays caused by market aggregation, the procurement of funds and the erection of new manufacturing facilities Select suitable countries/utilities for follow-up scoping studies for power systems with promising characteristics for large-scale PV implementation and, if warranted, ensuing detailed feasibility studies.